Money Market Funds vs. Online Banks

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John151
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Money Market Funds vs. Online Banks

Post by John151 » Sat Aug 18, 2018 10:35 pm

Now that Vanguard’s Prime Money Market Fund is paying around two percent, is there any reason to invest in savings accounts with online banks? Ally Bank’s online savings account is paying 1.80 percent.

mega317
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Re: Money Market Funds vs. Online Banks

Post by mega317 » Sat Aug 18, 2018 10:45 pm

There are higher yielding bank accounts than that, and VMMXX is not FDIC insured if you care.

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camillus
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Re: Money Market Funds vs. Online Banks

Post by camillus » Sat Aug 18, 2018 10:55 pm

I suppose it comes down to convenience and the level of safety that you're going for. My rewards checking account at my local bank pays more than 2% on a balance of 30k. If you are having to manage accounts at a third institution at a lower interest rate, no - it might not be worth it. The nice thing is you can always switch back.

Hopefully we are not talking about big numbers here on cash either way.

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nisiprius
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Re: Money Market Funds vs. Online Banks

Post by nisiprius » Sun Aug 19, 2018 6:25 am

There are subtle differences. How much they weigh in the balance is personal taste.

1) Money market funds do not carry FDIC deposit insurance and are not subject to banking regulations (though of course they are subject to SEC regulations). For thirty-seven years, everyone writing advice about money market funds would mention the lack of FDIC insurance and then say "but they are generally regarded as very safe anyway."

The collapse of the Reserve Primary fund--ironically, the original and very first of the money market funds--showed that the lack of FDIC insurance could matter.

I have personally had meaningful money in a credit union that failed (thus NCUA, not FDIC) and I can assure you that it was a complete nonevent, not even an inconvenience.

After the collapse of Reserve Primary it took something over 1-1/2 years for the dust to settle. In the end, shareholders pretty much got back all of their money, but it was in dribs and drabs. They initially had no access to any of their money at all for many months. Then, time would elapse, some court proceedings would conclude, and they'd get back another chunk of their money. Maybe they had half of it back nine months later, that kind of time scale.

Afterwards, the FDIC actually did insure other money market accounts for a brief period, to shore up public confidence, but that program has long since ended.

Could it happen again? Has the new regulations that separate retail from institutional money market funds and now require institutional funds to declare true market value instead of $1/share fixed? Was Reserve Primary sailing close to the wind and doing things Vanguard wouldn't do? Nobody can say for sure.

2) My (meh, hasn't paid terrific rates for a decade) Capital One 360 account has a lot of convenient features. I can instantly create new accounts, each with its own account number, funding it from an existing account. I can push or pull money from any of those accounts, via ACH, either as a single transfer or an automatic series of periodic transfers. So I can play games like giving a sketchy entity account number to "my bank account number" but only having a bit more than the required amount, with no possibility for them to take out more than that. I also play mental accounting games with designating different accounts for different things, which in theory I could do just as well on a spreadsheet.

3) Capital One and doubtless others offer "online checking" accounts that allow withdrawals through ATM machines. I don't think any money market funds do.

4) I live in a state where the state taxes on bank interest and money market funds are very subtly different.
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Re: Money Market Funds vs. Online Banks

Post by RickBoglehead » Sun Aug 19, 2018 6:50 am

Prime Money Market offers check writing, but check must be for $250 or more.

Ally has free bill paying, they mail check on their dime. Checking is free and no minimums.

Ally Checking can get immediate transfers from Online Savings, but only 6 per month. However, you can have multiple Online Savings accounts to get around this limit. Money is accessible via tens of thousands of ATMs worldwide, no fees.

Prime Money Market requires shares to be sold in day 1, then ACH'd on day 2, arriving at your bank on day 3. However, it won't cover withdrawals made until day 4, since they can happen earlier in the day and trigger an overdraw situation.

I have both. Prime Money Market holds more, and when my Ally gets too much I send it over to Vanguard. Likewise, when I need to pay large bills (property taxes, income taxes), I plan my Prime Money Market sell and transfer.

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Re: Money Market Funds vs. Online Banks

Post by MikeG62 » Sun Aug 19, 2018 7:08 am

RickBoglehead wrote:
Sun Aug 19, 2018 6:50 am

...Prime Money Market requires shares to be sold in day 1, then ACH'd on day 2, arriving at your bank on day 3. However, it won't cover withdrawals made until day 4, since they can happen earlier in the day and trigger an overdraw situation.

I have both. Prime Money Market holds more, and when my Ally gets too much I send it over to Vanguard. Likewise, when I need to pay large bills (property taxes, income taxes), I plan my Prime Money Market sell and transfer.
This is a well explained reason for maintaining both.
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Re: Money Market Funds vs. Online Banks

Post by Jack FFR1846 » Sun Aug 19, 2018 7:13 am

Redneck Bank's Megamoney account pays 2% up to $50k.
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informal guide
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Re: Money Market Funds vs. Online Banks

Post by informal guide » Sun Aug 19, 2018 7:18 am

I have a brokerage account with Vanguard Federal money market as my settlement account.

Recently, I have noticed that if I move money from this settlement account via ACH to an external account at another brokerage on a business day before 4 PM, the money arrives the next business day.

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Re: Money Market Funds vs. Online Banks

Post by MossySF » Sun Aug 19, 2018 7:43 am

To be honest, I'm way more worried about ACH fraud than money market collapse cuz the ACH system is so decrepit. If you look at how it works, the security feels ludicrously weak.

Hence I keep 2-3 months of spending cash in banks and the rest at either Vanguard money market or brokerage short-term bond ETFs. From WellsTrade, it takes 2 days (1 day settlement, 1 day to transfer) to get the money transferred to Wells Fargo checking where I can use it.

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Re: Money Market Funds vs. Online Banks

Post by BogleMelon » Sun Aug 19, 2018 7:52 am

RickBoglehead wrote:
Sun Aug 19, 2018 6:50 am
Money is accessible via tens of thousands of ATMs worldwide, no fees.
For Ally, it has to be Allpoint ATM, otherwise there are fees
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Re: Money Market Funds vs. Online Banks

Post by Cody » Sun Aug 19, 2018 7:59 am

Don't know how germane this to the topic but one can also hold an IRA in money market (or even possibly a savings account) with Ally. So it does not have to just be after tax money. Not sure if Cap1 allows this or not.

Cody

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Svensk Anga
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Re: Money Market Funds vs. Online Banks

Post by Svensk Anga » Sun Aug 19, 2018 9:23 am

I have kept the bulk of my ready funds at VG Prime MM since 1982, but I also hold a bit in an online bank (American Express, currently at 1.75%). My concern is if VG gets hacked and my account is locked down for a week or two. I can still grab funds as needed from AmEx.

I am pretty sure that VG is not going to do some dubious investments in Prime MM and so risk breaking the buck. Their at-cost business model means that they can offer a very competitive yield without taking much risk. So lack of FDIC insurance is not much of a concern. Other vendor's money market funds would require more due diligence.

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Re: Money Market Funds vs. Online Banks

Post by mega317 » Sun Aug 19, 2018 9:24 am

BogleMelon wrote:
Sun Aug 19, 2018 7:52 am
RickBoglehead wrote:
Sun Aug 19, 2018 6:50 am
Money is accessible via tens of thousands of ATMs worldwide, no fees.
For Ally, it has to be Allpoint ATM, otherwise there are fees
Ally will reimburse atm fees at least up to some limit

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goingup
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Re: Money Market Funds vs. Online Banks

Post by goingup » Sun Aug 19, 2018 9:28 am

I use Prime MM. Convenient. Good yield and have no worry about stewardship with Vanguard. We have very few financial institution relationships for simplicity sake.

enterobacter
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Re: Money Market Funds vs. Online Banks

Post by enterobacter » Sun Aug 19, 2018 10:46 am

I have been using Ally but have been thinking about putting some money into the money market as well. Newbie question - what type of account do ppl put this in at VG? Do you open a separate account?

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Re: Money Market Funds vs. Online Banks

Post by nisiprius » Sun Aug 19, 2018 10:48 am

Quick guess. Without peeking, what do you think the US/international breakdown for the Vanguard Prime Money Market Fund?

a) < 1% international
b) 1-10%* international
c) 10-30% international
d) 30-50% international
e) > 50% international?

For the answer, refer to this page or drag mouse
from here
vvvvvvvvvv
e) > 50% international.
8.5% + 0.2% + 2.2% + 10.8% + 24.7% = 46.4% US
53.6% Yankee/foreign

^^^^^^^^^
to here.

I don't know if this is any concern at all. I don't know if the investments made by my local bank are any different. But it's surprising (to me), it's quite different from what it used to be, and quite different from the

composition of the Vanguard Federal Money Market Fund (VMFXX)

If I'm reading the prospectus correctly, the international investments are all Yankee and Eurodollar, and "currency risk" is not mentioned as a fund risk, so I understand them to be dollar-denominated.

*For the mathematicians... the actual number is not not an exact integral percentage number, so it doesn't matter, but, if you care anyway, assume the range is ≥ the lower endpoint and < the upper endpoint.
Last edited by nisiprius on Sun Aug 19, 2018 11:10 am, edited 7 times in total.
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Re: Money Market Funds vs. Online Banks

Post by Longdog » Sun Aug 19, 2018 10:52 am

In my opinion, there is no reason. Although I know they are not absolutely equivalent, I believe the safety differences are inconsequential, plus the Money Market Fund can be used to write checks from (>$250). Also, it is super easy to do ACH transfers in either direction, should the economics reverse again.
Steve

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Re: Money Market Funds vs. Online Banks

Post by RickBoglehead » Sun Aug 19, 2018 11:36 am

BogleMelon wrote:
Sun Aug 19, 2018 7:52 am
RickBoglehead wrote:
Sun Aug 19, 2018 6:50 am
Money is accessible via tens of thousands of ATMs worldwide, no fees.
For Ally, it has to be Allpoint ATM, otherwise there are fees
There are 55,000 Allpoint ATMs. And they reimburse$10 per month outside the Allpoint network.

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Munir
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Re: Money Market Funds vs. Online Banks

Post by Munir » Sun Aug 19, 2018 12:02 pm

Are funds more quickly available from online savings accounts than transfers from Vanguard MM if using ACH transfers? If they are, is this negated by the check writing available at the MM account?

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Re: Money Market Funds vs. Online Banks

Post by tibbitts » Sun Aug 19, 2018 12:21 pm

nisiprius wrote:
Sun Aug 19, 2018 10:48 am
Quick guess. Without peeking, what do you think the US/international breakdown for the Vanguard Prime Money Market Fund?

a) < 1% international
b) 1-10%* international
c) 10-30% international
d) 30-50% international
e) > 50% international?

For the answer, refer to this page or drag mouse
from here
vvvvvvvvvv
e) > 50% international.
8.5% + 0.2% + 2.2% + 10.8% + 24.7% = 46.4% US
53.6% Yankee/foreign

^^^^^^^^^
to here.

I don't know if this is any concern at all. I don't know if the investments made by my local bank are any different. But it's surprising (to me), it's quite different from what it used to be, and quite different from the

composition of the Vanguard Federal Money Market Fund (VMFXX)

If I'm reading the prospectus correctly, the international investments are all Yankee and Eurodollar, and "currency risk" is not mentioned as a fund risk, so I understand them to be dollar-denominated.

*For the mathematicians... the actual number is not not an exact integral percentage number, so it doesn't matter, but, if you care anyway, assume the range is ≥ the lower endpoint and < the upper endpoint.
That's interesting and good to know, but I don't think it matters to me, except for state taxes. In comparing Ally etc. to Prime, I used to factor in some percentage of Prime returns being state-tax-free. Now, not so much. For a lot of funds we just have to trust that the managers know what they're doing. Sometimes they run off the rails, even at Vanguard - like with Total Bond. Usually they don't, or at least not in a way that we find out about.

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Re: Money Market Funds vs. Online Banks

Post by yaynick » Sun Aug 19, 2018 12:53 pm

Fidelity's Cash Management Account answers a lot of the doubts here. Withdrawals and transfers straight from money market positions (no need to sell ahead of time). Global ATM reimbursement. Plus, it can be used as a brokerage account if the goal is to consolidate.

Like Ally, there is a 1% foreign transaction fee. In practice, some people report that this only applies to purchases (not ATM transactions). The core position is a low interest account, so you have to purchase money markets shares on days where you have net inflows.

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Re: Money Market Funds vs. Online Banks

Post by jalbert » Sun Aug 19, 2018 12:54 pm

The main problem with the Prime MMF is that the so-called admiral share class of the fund is an institutional class product with a $5M minimum balance requirement.

With the higher ER of the investor class, too much of the risk premium flows to the administration of the fund relative to the Federal or Treasury MMF. The spread of the Prime MMF yield relative to that of the Federal MMF is only 17 bp. The treasury MMF earns 1 bp more than the Federal MMF, and is 100% treasuries, but it has a $50K minimum.

My concern with the Prime MMF is not so much a concern with it breaking the buck as the enforcement of liquidity restrictions by temporary suspensions of withdrawals as may be required by newer regulations. The Federal MMF is exempt from these requirements.

While most takeovers of accounts by other institutions are seamless non-events when the FDIC or NCUA steps in to backstop an insolvent institution, that was not the case during the S&L crisis in the 1980’s. In many cases it took months for the FSLIC to untangle the assets on the balance sheet of a failed S&L and deposits were illiquid for months in some cases. And there was no interest earned between the day of insolvency and the day of refund. CDs with high interest rates not yet at term were broken and just refunded at the level of balance on the day of insolvency.
Risk is not a guarantor of return.

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JoMoney
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Re: Money Market Funds vs. Online Banks

Post by JoMoney » Sun Aug 19, 2018 3:03 pm

Munir wrote:
Sun Aug 19, 2018 12:02 pm
Are funds more quickly available from online savings accounts than transfers from Vanguard MM if using ACH transfers? If they are, is this negated by the check writing available at the MM account?
Possibly if it's at the same bank. One of the things I like about my Capital One Money Market account, is that I can immediately transfer the funds to my Capital One 360 Checking at any hour of the day any day of the week, and it's immediately available for withdrawal at an ATM or to submit a 'Bill Pay'. If I want to access the money in my Vanguard Money Market fund it will take a few days to do an ACH transfer and the process can only be started on days the market is open. Also, when I put money in to my Vanguard Money Market fund there is a few days of settlement before the money is available to be withdrawn (although it can be used for fund purchases at Vanguard).
The check writing feature on Vanguard funds isn't much use to me anymore, and I kind of like the security of not opening up my Vanguard account to the security/fraud risks of having a checking writing account tied to it.
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Re: Money Market Funds vs. Online Banks

Post by Kevin M » Sun Aug 19, 2018 3:23 pm

I moved the bulk of my cash from Ally to Vanguard Prime MM when the MM rate rose above the 11-month no-penalty CD rate at Ally. Then I moved it into Vanguard Treasury MM fund when I saw that my taxable-equivalent yield (TEY) was higher in that fund (currently 2.16% vs. Prime at 2.06%). Then I moved most of it into a local savings account (Poppy Bank) at 2.50% APY. I also have a reward checking account (RCA) at Heritage Bank earning 3.33% APY on $25K.

I still love Ally as a hub bank--it has almost all the features I need in a bank. I can send money to people almost instantly using Zelle, so the ultimate in liquidity. Have multiple savings and checking accounts for different purposes, use bill pay, etc. Very high ACH limits, can set up many externally linked accounts (haven't hit the limit yet, whatever it is). I keep enough cash in Ally savings accounts to feel comfortable about liquidity, schedule 2 or 3 monthly transfers from Ally savings to Ally checking to pay the bills over the next 7-10 days, and transfer money from Vanguard or Poppy Bank as necessary to replenish the Ally savings accounts monthly.

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Re: Money Market Funds vs. Online Banks

Post by tibbitts » Sun Aug 19, 2018 3:40 pm

jalbert wrote:
Sun Aug 19, 2018 12:54 pm
The main problem with the Prime MMF is that the so-called admiral share class of the fund is an institutional class product with a $5M minimum balance requirement.

With the higher ER of the investor class, too much of the risk premium flows to the administration of the fund relative to the Federal or Treasury MMF. The spread of the Prime MMF yield relative to that of the Federal MMF is only 17 bp. The treasury MMF earns 1 bp more than the Federal MMF, and is 100% treasuries, but it has a $50K minimum.

My concern with the Prime MMF is not so much a concern with it breaking the buck as the enforcement of liquidity restrictions by temporary suspensions of withdrawals as may be required by newer regulations. The Federal MMF is exempt from these requirements.

While most takeovers of accounts by other institutions are seamless non-events when the FDIC or NCUA steps in to backstop an insolvent institution, that was not the case during the S&L crisis in the 1980’s. In many cases it took months for the FSLIC to untangle the assets on the balance sheet of a failed S&L and deposits were illiquid for months in some cases. And there was no interest earned between the day of insolvency and the day of refund. CDs with high interest rates not yet at term were broken and just refunded at the level of balance on the day of insolvency.
I hadn't realized the expense ratio was so different. So if Federal has a somewhat higher treasury content (vs. other gov't obligations), it could at least come close to Prime yield in a taxable account, I guess.

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Re: Money Market Funds vs. Online Banks

Post by BogleMelon » Sun Aug 19, 2018 4:17 pm

mega317 wrote:
Sun Aug 19, 2018 9:24 am
BogleMelon wrote:
Sun Aug 19, 2018 7:52 am
RickBoglehead wrote:
Sun Aug 19, 2018 6:50 am
Money is accessible via tens of thousands of ATMs worldwide, no fees.
For Ally, it has to be Allpoint ATM, otherwise there are fees
Ally will reimburse atm fees at least up to some limit
According to Ally:
There's no charge to use any Allpoint® ATM in the U.S., plus we reimburse up to $10 at the end of each statement cycle for fees charged at other ATMs nationwide
So "Worldwide" ATM's absolutely comes with fees
"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

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Re: Money Market Funds vs. Online Banks

Post by BogleMelon » Sun Aug 19, 2018 4:29 pm

enterobacter wrote:
Sun Aug 19, 2018 10:46 am
I have been using Ally but have been thinking about putting some money into the money market as well. Newbie question - what type of account do ppl put this in at VG? Do you open a separate account?
Brokerage (taxable) account
"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

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Re: Money Market Funds vs. Online Banks

Post by mickeyd » Sun Aug 19, 2018 4:57 pm

I dumped PMMF for Ally online a few years ago when rates were low-low. I have since dumped Ally for PMMF. Cash is king.
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Re: Money Market Funds vs. Online Banks

Post by tj » Sun Aug 19, 2018 5:12 pm

BogleMelon wrote:
Sun Aug 19, 2018 4:17 pm
mega317 wrote:
Sun Aug 19, 2018 9:24 am
BogleMelon wrote:
Sun Aug 19, 2018 7:52 am
RickBoglehead wrote:
Sun Aug 19, 2018 6:50 am
Money is accessible via tens of thousands of ATMs worldwide, no fees.
For Ally, it has to be Allpoint ATM, otherwise there are fees
Ally will reimburse atm fees at least up to some limit
According to Ally:
There's no charge to use any Allpoint® ATM in the U.S., plus we reimburse up to $10 at the end of each statement cycle for fees charged at other ATMs nationwide
So "Worldwide" ATM's absolutely comes with fees

Use Alliant Credit Union then..

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Re: Money Market Funds vs. Online Banks

Post by arf30 » Sun Aug 19, 2018 5:51 pm

Interesting topic, I've been using Vanguard prime MM for savings but am aware of the risks vs traditional savings accounts. I've been thinking about using the Vanguard settlement fund instead (Federal MM), which still yields 1.91% and doesn't have the liquidity rules that prime has as it's backed by 100% Federal securities.

BogleMelon
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Re: Money Market Funds vs. Online Banks

Post by BogleMelon » Sun Aug 19, 2018 7:54 pm

tj wrote:
Sun Aug 19, 2018 5:12 pm
BogleMelon wrote:
Sun Aug 19, 2018 4:17 pm
mega317 wrote:
Sun Aug 19, 2018 9:24 am
BogleMelon wrote:
Sun Aug 19, 2018 7:52 am
RickBoglehead wrote:
Sun Aug 19, 2018 6:50 am
Money is accessible via tens of thousands of ATMs worldwide, no fees.
For Ally, it has to be Allpoint ATM, otherwise there are fees
Ally will reimburse atm fees at least up to some limit
According to Ally:
There's no charge to use any Allpoint® ATM in the U.S., plus we reimburse up to $10 at the end of each statement cycle for fees charged at other ATMs nationwide
So "Worldwide" ATM's absolutely comes with fees

Use Alliant Credit Union then..
I use Charles Schwab checking account. Unlimited ATM withdrawals with no fees worldwide. Will reimburse other banks fees too no matter how much!
"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

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Re: Money Market Funds vs. Online Banks

Post by jalbert » Sun Aug 19, 2018 11:51 pm

arf30 wrote:
Sun Aug 19, 2018 5:51 pm
Interesting topic, I've been using Vanguard prime MM for savings but am aware of the risks vs traditional savings accounts. I've been thinking about using the Vanguard settlement fund instead (Federal MM), which still yields 1.91% and doesn't have the liquidity rules that prime has as it's backed by 100% Federal securities.
The Federal MMF currently has about 60% in securities backed by the full faith and credit of the US treasury (short-term treasury securities and repurchase agreements collateralized by short-term treasury securities). This allocation at times is as high as 80%.

The other 40% currently is in short-term Federal agency debt. I think this would likely still be considered to be higher credit quality than the highest grade commercial paper held by the Prime MMF.
Risk is not a guarantor of return.

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Re: Money Market Funds vs. Online Banks

Post by stan1 » Mon Aug 20, 2018 7:20 am

jalbert wrote:
Sun Aug 19, 2018 11:51 pm
arf30 wrote:
Sun Aug 19, 2018 5:51 pm
Interesting topic, I've been using Vanguard prime MM for savings but am aware of the risks vs traditional savings accounts. I've been thinking about using the Vanguard settlement fund instead (Federal MM), which still yields 1.91% and doesn't have the liquidity rules that prime has as it's backed by 100% Federal securities.
The Federal MMF currently has about 60% in securities backed by the full faith and credit of the US treasury (short-term treasury securities and repurchase agreements collateralized by short-term treasury securities). This allocation at times is as high as 80%.

The other 40% currently is in short-term Federal agency debt. I think this would likely still be considered to be higher credit quality than the highest grade commercial paper held by the Prime MMF.
Prime Money Market ain't what it used to be.
8.5% CDs
2.2% commercial paper
10.8% US government obligations
24.7% US Treasury Bills
53.6% Yankee/foreign (debt issued in the US in US dollars by a foreign company)
0.2% Repurchase agreements

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Re: Money Market Funds vs. Online Banks

Post by BogleMelon » Mon Aug 20, 2018 7:29 am

Guys, you got me a bit confused here. I have most of my EF in Prime MM, but now it looks not that safe. So what is the next safest MM fund in Vanguard that can be used? Or do you suggest to return it back to Ally and call it a day?
"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

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Re: Money Market Funds vs. Online Banks

Post by MnD » Mon Aug 20, 2018 9:02 am

I love to see all this fear in brokerage money market funds including VG Prime despite numerous reforms making them safer than the prior decades. They wouldn't have a yield edge without it. Waving the Yankee obligation flag in particular always sends a number scurrying back to banks. :mrgreen:

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Re: Money Market Funds vs. Online Banks

Post by jalbert » Mon Aug 20, 2018 1:16 pm

BogleMelon wrote:
Mon Aug 20, 2018 7:29 am
Guys, you got me a bit confused here. I have most of my EF in Prime MM, but now it looks not that safe. So what is the next safest MM fund in Vanguard that can be used? Or do you suggest to return it back to Ally and call it a day?
It’s fairly safe. Federal MMF is safer. Treasury MMF is even safer but has a $50K minimum. If you pay state income taxes, 60% of the income of Federal MMF, 100% of Treasury MMF, and 25% or so of Prine MMF is state-tax-free in most or all states.
Risk is not a guarantor of return.

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Re: Money Market Funds vs. Online Banks

Post by jalbert » Mon Aug 20, 2018 1:19 pm

stan1 wrote:
Mon Aug 20, 2018 7:20 am
jalbert wrote:
Sun Aug 19, 2018 11:51 pm
arf30 wrote:
Sun Aug 19, 2018 5:51 pm
Interesting topic, I've been using Vanguard prime MM for savings but am aware of the risks vs traditional savings accounts. I've been thinking about using the Vanguard settlement fund instead (Federal MM), which still yields 1.91% and doesn't have the liquidity rules that prime has as it's backed by 100% Federal securities.
The Federal MMF currently has about 60% in securities backed by the full faith and credit of the US treasury (short-term treasury securities and repurchase agreements collateralized by short-term treasury securities). This allocation at times is as high as 80%.

The other 40% currently is in short-term Federal agency debt. I think this would likely still be considered to be higher credit quality than the highest grade commercial paper held by the Prime MMF.
Prime Money Market ain't what it used to be.
8.5% CDs
2.2% commercial paper
10.8% US government obligations
24.7% US Treasury Bills
53.6% Yankee/foreign (debt issued in the US in US dollars by a foreign company)
0.2% Repurchase agreements
Yankee debt is also commercial paper, which still makes up over half of the fund. I think the main risk is that for the foreign company, a rising dollar would increase the debt load if their revenue is not in dollars.
Risk is not a guarantor of return.

jalbert
Posts: 3918
Joined: Fri Apr 10, 2015 12:29 am

Re: Money Market Funds vs. Online Banks

Post by jalbert » Mon Aug 20, 2018 1:25 pm

MnD wrote:
Mon Aug 20, 2018 9:02 am
I love to see all this fear in brokerage money market funds including VG Prime despite numerous reforms making them safer than the prior decades. They wouldn't have a yield edge without it. Waving the Yankee obligation flag in particular always sends a number scurrying back to banks. :mrgreen:
Do any brokerages other than Vanguard have low enough expense ratios on their MMFs to have a yield advantage over high yield savings accounts?

I’m skeptical that retail investors have much if any influence on rates in the cash markets.
Risk is not a guarantor of return.

gostars
Posts: 439
Joined: Mon Oct 09, 2017 7:53 pm

Re: Money Market Funds vs. Online Banks

Post by gostars » Tue Aug 21, 2018 1:17 am

Fidelity's SPRXX is at 1.83% 7-day yield and FZDXX ($100k min initial) is at 1.95%. Schwab's SWVXX is at 1.89%. Probably the closest brokerage options to VMMXX.

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